Gaotu Techedu Inc. (NYSE: GOTU), a leading provider of online education in China, reported a robust financial performance in its fourth-quarter and fiscal year 2023 earnings call. The company saw a 20.9% year-over-year increase in net revenues to RMB 761 million and a 28.1% growth in gross billings to approximately RMB 1.3 billion. The net operating cash inflow for the year surged by approximately 5.5 times year-over-year. Gaotu Techedu's educational services for college students and adults now represent 25% of total revenues, with the overseas test prep business experiencing over 200% growth in revenue and gross billings. Despite a net loss of RMB 119.6 million, the company is confident in its growth prospects for 2024, emphasizing improvements in gross profit margins and customer value creation.
Key Takeaways
- Gaotu Techedu's net revenues and gross billings saw significant year-over-year growth.
- The company has diversified educational products and services, focusing on non-academic tutoring and traditional high school business.
- Gaotu Techedu is expanding into the offline market, although it had a limited financial impact in 2023.
- The company plans to enhance margins and maintain top-line growth and profitability in 2024.
- Gross profit margin decreased due to revenue mix changes and seasonal investments, but is expected to improve in the medium term.
Company Outlook
- Gaotu Techedu expects net revenues for the next quarter to increase by 29.4% to 31.2% year-over-year.
- The company is focused on margin improvement and creating value for customers through diverse acquisition channels.
- Gaotu Techedu remains confident in its growth prospects for 2024, particularly in non-academic tutoring and traditional high school business.
Bearish Highlights
- The company reported a net loss of RMB 119.6 million.
- Gross profit margin has decreased due to changes in the revenue mix and investments for the winter vacation season.
Bullish Highlights
- Strong growth in educational services for college students and adults, which now account for a quarter of total revenues.
- Over 200% growth in revenue and gross billings in the overseas test prep business.
Misses
- The expansion into the offline space had a limited impact on the company's financials in the past quarter and throughout 2023.
Q&A Highlights
- The company prioritizes margin improvements over rapid revenue expansion.
- Gaotu Techedu is exploring diverse customer acquisition channels to reduce costs.
- The company expects gross profit margins to improve in the medium term despite the current narrowing.
Gaotu Techedu's strategic focus on enhancing critical thinking skills and learning abilities through its educational offerings has driven significant growth in gross billings, particularly in non-academic tutoring services. By diversifying its product offerings and engaging with regulatory authorities, the company has maintained a competitive edge in the online education space. The company's strong financial results, coupled with its confidence in continued growth and profitability, underscore its commitment to delivering quality education while expanding its market presence both online and offline.
InvestingPro Insights
Gaotu Techedu's recent financial performance highlights the company's growth and the strategic shifts it is making in the education sector. To complement the article's analysis, here are some insights based on real-time data and InvestingPro Tips that could further inform investors about the company's market position and potential outlook.
InvestingPro Data reveals that Gaotu Techedu has a market capitalization of $1.53 billion USD, with a notable P/E ratio (adjusted for the last twelve months as of Q3 2023) of 98.29. This high earnings multiple may indicate investor optimism about future growth, despite the current valuation being steep compared to earnings. The company's gross profit margin impressively stands at 74.49%, reflecting strong operational efficiency in terms of cost management relative to revenue.
In terms of stock performance, Gaotu Techedu has experienced a significant return over the last week, with a price total return of 54.27%. This kind of movement suggests a high level of investor interest and potential volatility, as evidenced by the stock's high price volatility noted in InvestingPro Tips.
Two InvestingPro Tips that stand out for Gaotu Techedu are:
1. The company holds more cash than debt on its balance sheet, which provides financial stability and flexibility, particularly important in the dynamic education industry.
2. Gaotu Techedu is recognized as a prominent player in the Diversified Consumer Services industry, which could position it well to capitalize on industry trends and consumer demands.
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Full transcript - GSX Techedu A (NYSE:GOTU) Q4 2023:
Operator: Good day. And welcome to Gaotu Techedu Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Catherine Chen, Head of Investor Relations. Please go ahead.
Catherine Chen: Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's fourth quarter and fiscal year 2023 earnings conference call. My name is Catherine and I'll help host the earnings call today. Gaotu's earnings release for the quarter was distributed earlier, and is available on the company's IR website at ir.gaotu.cn, as well as through PR newswire services. Joining the call with me tonight from Gaotu's senior management is Mr. Larry Chen, Gaotu's Founder, Chairman and Chief Executive Officer, and Ms. Shannon Shen, Gaotu's Chief Financial Officer. Larry will first provide the business highlights for the quarter, and then afterwards Shannon will discuss our financial performance in more detail. Following their prepared remarks, we will open the floor to questions from analysts. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements made under the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current beliefs and expectations, as well as the current market and operating conditions. And they involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict, and many of which are beyond the company's control, and may cause the company's actual results, performance or achievements to differ materially from those contained in any forward-looking statements. Further information regarding these and other risks is included in the company's public filings with the US SEC. The company does not undertake any obligation to update any forward-looking statement except as required under applicable law. During today's call, management will also discuss certain non-GAAP measures for comparison purposes only. For a definition of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please refer to our fourth quarter and fiscal year 2023 earnings release published earlier today. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this conference call will be available on Gaotu's IR website. It is now my pleasure to introduce our Founder, Chairman and Chief Executive Officer, Larry. Larry, please.
Larry Chen: Good evening and good morning, everyone. Thank you for joining us on call to the fourth quarter and the fiscal year 2023 earnings conference call. I would like to take this opportunity to express my gratitude to all of you for your interest and support of Gaotu. Before I start, I would like to remind everyone that all financial figures discussed today are quoted in RMB, unless stated otherwise. During the past quarter, we continued to bolster our core financial strengths, while simultaneously pushing the boundaries of new initiatives. We observed a notable uptick in demand for high quality educational products and learning services. And we remained focused on tracing this demand by enhancing our product offerings and the channels across key business lines, including non-academic tutoring services, traditional learning services and educational services for college students and adults. Investing in emerging technologies such as artificial intelligence allows us to acquire a more profound and holistic insight into the fundamental needs of users and students, enabling us to provide precise and personalized offerings and services, thereby elevating user experiences and improving learning outcomes. Our deep industry insights, exceptional organizational capabilities and well-established HR recruitment and training systems have provided a robust foundation for the sustainable development of our business. Now, I'm pleased to report our results for the fourth quarter of the year and the share our expectations for future business endeavors. Our net revenues increased 20.9% year-over-year to RMB 761 million, exceeding our expectations. Our gross billings grew 28.1% year-over-year to approximately RMB 1.3 billion, indicating an accelerating growth trend compared to the prior quarter, and we expect this growth momentum of our business to continue. In the fourth quarter, our cash flow from operating activities was RMB 491.5 and our net operating cash inflow in the full year 2023 increased by approximately 5.5 times year-over-year, a strong testament to the ongoing improvement of our operating efficiency. As of December 3, 2023, our deferred revenues reached over RMB 1.2 billion, laying solid groundwork for our further growth in 2024. Our cash balance, which includes cash, cash equivalents, restricted cash, withdrawable cash balance on third-party payment platform as well as short and long term investments totaled over RMB 4 billion, ensuring lasting and stable support for our business development. I will now discuss our business highlights from the fourth quarter across four aspects. First, we are diligently focused on both our educational products and services to boost learning efficiency and optimize the overall learning experience. Throughout the process, we've remained laser focused on user needs and potentials, and expanded our range of products and services as needed. We established an integrated online/offline offering by launching on the ground bootcamps and learning centers. [indiscernible] for our educational services for college students and adults, such as applying exam prep bootcamps, can better address students' needs in areas such as post graduate entrance exams, civil service exams and overseas study preparation. In addition, through collaboration with renowned publishing houses such as foreign language teaching and research prep, we developed textbook series that have achieved major breakthroughs as a comprehensive vocation solutions covering instruction, learning, [indiscernible] and evaluation. Some of these publications are currently used as a textbook by several major universities and high schools in China. For our traditional learning services, we saw a significant increase in retention rate during the 2023 four semester compared to the same period last year, thanks to our ongoing efforts to refine class content and improved delivery quality. At the same time, we actively communicated with regulatory authorities at all levels, seeking guidance on relevant policies and compliance and re-iterated our educational products and learning services accordingly. Second, we continued our efforts to explore and diversify the customer acquisition channels and enhance operational efficiency. Leveraging our high quality content and efficient operations, we have expanded into innovative channels, including live streaming and short form video platforms, as well as offline avenues, establishing our competitive edge in these channels. In the live streaming space, the substantial overlap in skill sets between online tutors and the livestream helps give us competitive advantage in customer acquisition. We have grown to be leading influencer on Douyin, particularly in certain educational categories for college students and adults. Meanwhile, we actively expanded our offline channels to boost regional brand visibility. The comprehensive channel mix not only ensures sustained business growth, but also allow us to engage with customers through diverse channels, gaining insight into their needs, fostering deep interactions and bringing down customer acquisition costs. As a result of the measures, our customer acquisition efficiency remains at a high level in the fourth quarter, demonstrating the success of our enhanced investment in customer acquisition. Third, we leveraged our organizational capabilities and the talent pool to drive consistent business growth. We believe that education is a process of outstanding teachers positively influencing students. Therefore, one of Gaotu's most crucial strategies which will enhance organizational capabilities to systematically nurture top tier educators add skill and to high standards. By cultivating a team characterized by a passion for learning resilience and strong coherence will ensure the effective and efficient operation of our organization. While the booming business has resulted in rapid organizational expansion, we continue to maintain a consistent standard of hiring the best-in-class instructors and tutors in the industry. Taking our post graduate entrance exam prep business as an example, the percentage of our tutors with a master's degree has increased to over 70%, positioning us at the forefront of the industry. Teachers with firsthand experience in post graduate entrance exams can provide students with [indiscernible] including professionally, psychologically and emotionally, therefore enhancing the overall effectiveness of the test preparation. Fourth, we remain committed to fulfilling our social responsibilities and activity through a social value. In the fourth quarter, we organized the Gaotu Hope project with rural primary school principals online forum in partnership with the China Youth Development Foundation. Over 600 rural primary school principals and teachers from 11 provinces attended the events, engaging in insightful discussions on rural education in the era of artificial intelligence. In addition, we donated RMB 10 million to the China's Next Generation Education Foundation, aiming to improve a family education and the mental wellbeing of young children and adolescents. We will remain steadfast in our commitment to our regional educational aspirations, striving to enhance equity and accessibility in education. We have full confidence in regard to the prospects for 2024. For the future and for the further future, we are prepared to devote our full efforts to executing on our strategy. With robust talent pool, a highly cohesive organization and strong cash flow, we believe that we can achieve promising top line growth, while enhancing profitability by consistently delivering top notch educational products and learning services, thus generating long term value for both our shareholders and our society. Thank you very much. This is the end of my prepared remarks. Now I will pass the call over to our CFO, Shannon, to walk us through the financial and operational details of the quarter.
Shannon Shen: Thank you, Larry. And thank you everyone for joining our call today. I will now walk you through our operating and financial performance for the fourth quarter and fiscal year 2023. During the quarter, our business entered a healthy phase of rapid and sustainable expansion. We witnessed accelerated growth in the gross billings of our core business lines, while our new initiatives also demonstrated promising growth potential. In the fourth quarter, net revenues increased by 20.9% year-over-year to RMB 761 million, topping the upper end of our guidance by 10.6 percentage points. The better-than-expected performance was driven by the surge in gross billings, which increased by 28.1% year-over-year to approximately RMB 1.3 billion. Benefiting from ongoing improvements in operational efficiency, our net operating cash inflow reached RMB 491.5 million, while cash, cash equivalents, restricted cash, withdrawable cash balance on third-party payment platforms, as well as short and long term investments exceeded RMB 4 billion, laying solid groundwork for the long term growth of our business. Next, I will walk you through the progress we have made during the quarter. Learning services contributed over 95% of net revenues. Breaking it down, more than 70% of total revenues came from non-academic tutoring services and other traditional learning services, representing over 35% year-over-year growth, and solidifying the segment's role as a key driver of our business. Our new initiative is centered around non-academic tutoring. Over the past few quarters, we have been diligently designing and developing educational products tailored to students learning needs. By sparkling students' interest in learning, we aim to enhance their fundamental critical thinking skills and learning abilities, while fostering healthy study habits and self-motivation. Our course offerings undergo constant iteration and refinement and have shown to be popular and satisfied with our students. Underpinned by a combination of top notch educational products and high caliber learning services, gross billings of our non-academic tutoring services increased by triple digits year-over-year. While maintaining our competitive edge in instructors, we have also consistently helped our tutors' service capabilities. Additionally, by diversifying our educational products and learning service formats, we have established a comprehensive product metric to meet users' varied and personalized learning needs. Our ongoing refinement of products and the teaching capabilities has also contributed to further improvement in retention rates. In the meantime, we have closely monitored regulatory policy developments and engaged proactively with authorities at different levels to seek compliance guidance for curriculum content and frameworks. This ensures that we can plan for long term healthy business growth within regulatory boundaries. Our traditional learning services continued to maintain a leading edge in the online space. In terms of educational products, we have developed a more targeted and personalized curriculum by taking a tiered approach to design and developing holistic learning journeys. We have also carefully curated and cultivated the most influential and reputable instructors in the industry and established a highly competitive team of tutors. For customer acquisition, we have developed channels driven by high quality content and efficiently gathered user feedback to derive valuable insights for our business. By seamlessly integrating front end and back end processes, we have consistently enhanced our customer acquisition efficiency. In the fourth quarter, we achieved rapid growth in gross billings from new enrollments, while simultaneously reducing the unit acquisition costs. The other crucial component of our learning services is educational services for college students and adults, which accounted for around 25% of total revenues during the quarter, benefiting from a refined strategic focus and optimized educational products. Gross billings of this segment rebounded to grow by more than 10% year-over-year in the quarter, setting the stage for its contribution to our revenue growth in 2024 and beyond. Driven by robust market demand and improved operational efficiency, both our domestic exam prep business and overseas study related business are charting a more promising growth trajectory. Particularly in the quarter, our overseas test prep business saw year-over-year growth of more than 200% in both revenue and gross billings, thanks to our ongoing innovation and expansion efforts in the short video and live streaming space. Furthermore, our postgraduate entrance exam prep business generated a positive cash flow for the second consecutive quarter, while our civil service exam prep business achieved quarterly profit. For the full year 2023, our net revenues grew by 18.5% year-over-year to approximately RMB 3 billion, while gross billings grew by 31.7% year-over-year to over RMB 3.3 billion. Gross margin was 73.3%, 1.4 percentage points higher than the same period of last year. Non-GAAP net income was RMB 51.1 million and non-GAAP net income margin was 1.7%. These robust operational and financial results are attributable to our year-long efforts to diversify our customer acquisition channels, upgrade our teaching and service offerings, and enhanced organizational and execution capabilities. By strengthening our core competencies, we were able to swiftly deploy resources based on changes in the market environment and user demand, proactively meeting diverse customer needs, while remaining compliant with regulatory requirements. Looking ahead to 2024, we will further unleash the untapped potential across our business lines and embrace emerging opportunities as they arise. Leveraging our diversified product metrics and service formats, along with efficient customer acquisition and operational capabilities, we remain dedicated to providing students with exceptional learning experiences and excellent learning results. I will now present our financials in more detail. Our cost of revenues this quarter was RMB 227.7 million. Gross profit increased 13.4% year-over-year to RMB 533.3 million and the gross profit margin was 17.1%. Total operating expenses during the quarter increased 49.1% year-over-year to RMB 721.2 million. Breaking it down, selling expenses increased 60.7% year-over-year to RMB 465.7 million, accounting for 61.2% of net revenues. This was primarily attributable to our increased marketing investments to address the robust demand during the winter season, benefiting from our expanded operations in a diverse range of innovative customer acquisition channels, especially in the short video and live streaming space. Our selling expenses ROI in the quarter remained at a high level observed throughout the year. Moving on, research and development expenses increased 22.1% year-over-year to RMB 136 million, accounting for 17.9% of net revenues. General and administrative expenses increased over 45% year-over-year to RMB 119.5 million, accounting for 15.7% of net revenues. Loss from operations was RMB 187.9 million and operating margin was negative 24.7%. Non-GAAP loss from operations was RMB 172.2 million non-GAAP operating margin was negative 22.6%. Net loss was RMB 119.6 million and net income margin was negative 15.7%. Non-GAAP net loss was RMB 104 million and non-GAAP net income margin was negative 13.7%. Our net operating cash inflow was RMB 491.5 million. Turning to our balance sheet. As of December 31, 2023, we held RMB 741.7 million in cash, cash equivalents, restricted cash and withdrawable cash balance on third-party payment platforms, along with around RMB 2.3 billion in short term investments and around RMB 1 billion in long term investments. This comes to a total of over RMB 4.236 billion than at the same time point in the last year. As of December 31, 2023, our deferred revenue balance was around RMB 1.2 billion, which primarily consisted of tuition received [indiscernible]. As of December 31, 2023, we have reported an aggregate of approximately 4.9 million ADRs on the open market for approximately US$12.4 million. We will continue to execute stock buybacks in accordance with the guidance of the board of directors and create a long term value for our shareholders. Before I provide our business outlook for the next quarter, please allow me to remind everyone that this contains forward-looking statements, which involve risks and uncertainties, which are beyond our control, and could cause the actual results to differ materially from our predictions. Based on our current assets [Technical Difficulty] 2024 are expected to be between RMB 908 million and RMB 925 million, representing an increase of 29.4% to 31.2% on a year-over-year basis. This concludes my prepared remarks. Operator, we are now ready for the Q&A section. Thank you, everyone, for listening.
Operator: [Operator Instructions]. The first question comes from Timothy Zhao with Goldman Sachs.
Timothy Zhao: Congratulations on the very strong results. I have two questions. One is about the student acquisition, especially for the upcoming or the ongoing winter vacation. Can management share some color on the customer acquisition progress and also the related customer acquisition cost? Secondly, in your prepared remarks, you mentioned comprehensive channels to acquire customers, including the short form videos, live streaming and offline avenues. I think, specifically, on offline, could you share some color on your plan [indiscernible] in terms of the number of learning centers or any color on your projected revenue or profit contribution? That will be very helpful.
Shannon Shen: First, we're very happy to share the most recent updates for our winter vacation performance. And in terms of the customer acquisition cost, let's revisit the winter vacation performance from both supply and demand perspectives. So starting with the supply side, the current operating environment imposes relatively high requirements on institutions' capability of deliver high quality products, including the ability of continually refining the curriculums, like faculty reserves and the cash positions and also very important to meet all compliance standards. Therefore, the supply of high quality courses in the winter actually is very limited. On the demand side, we have perceived a strong demand from the students. So the scarcity of supply, coupled with strong demand, presents an excellent growth opportunity. And also, we were fully prepared for the winter peak season. And therefore, our winter vacation gross billings has maintained quite a high year-over-year growth rate. If we exclude the cash collection from retentions in the same period of last year, we do an apples-to-apples comparison, we foresee a high end of high-double-digit year-over-year growth for our traditional learning services and non-academic tutoring services. Actually, quite impressive. Behind all this fast growth is our highly efficient customer acquisitions. So, we deployed 30 new channels, especially for the short video, live streaming platforms, as well as our new exploration to some offline channels. Both these channels had really high requirement on the operations, especially for the collaboration between the front end and the back end. We need to have the ability to target the process – to precisely targeting our customers and fulfill their needs in a very short of time. Then also, that needs our back-end team, which means our tutors, to further facilitate these [indiscernible] students timely and meet their learning demands. So based on our observation, we do observe a meaningfully customer acquisition cost decline in the winter vacation. And also, you asked about our offline channels and our offline operations, basically, like, two different business. First, to facilitate our online business, we also have some offline channels to support our online business to grow. And in the other hand, we do start to deploy our operations for our offline learning centers. And we're more than happy to share with you some perspectives and insights into our offline operations. So, the reason why we start to enter into the offline space is because in the post-pandemic era, we keenly observed a diversification in students' learning needs. While many have adopted well on learning online, there is a growing desire among students to return to offline classrooms for more connections, interactions and engagements with the teachers and their classmates. Currently, numbers of parents opt for a hybrid approach, with some courses taken online and others offline, aiming to enhance learning efficiency and cater to a diverse learning need. So as an educational institution, one of our most important mission is to continually meet customer demand. So with such a demand rise, we naturally extend our operation to offline and adapt the education products accordingly. And on the other hand, we dedicatedly evaluate our management team's background and capabilities. Our founder, Larry, brings years of experience in offline business operations, very profound industry insights and considerable personal influence, which can all contribute to attract all those top talents in the space, especially after the diversification. When customer demands align with our organizational capabilities, we embark on the exploring and expanding our offline operations. So that's the reason why we started to enter the offline space. When we operate in the selecting locations process [indiscernible] plan for expansion of our offline operations, we employ more of a dynamic approach. We're continuously optimizing and adjusting – we need to consider a few factors like market in mind and also Gaotu's brand influence and penetration in certain areas and also the acceptance of teaching products by the students and teachers in that specific area and, most importantly, our ability to recruit and nurture outstanding [indiscernible] and teaching faculties locally. So, development of offline operations also entails a long cycle, requiring sustained investment from user cultivation to word of mouth referrals, which is the reputation for the local offline learning centers. So we will be extremely patient and wait for [indiscernible] growth of our offline business. Ultimately, no matter it's online or it's offline, students always care most about the suitable teachers and the feeding curriculum and the outstanding services. We will continue to strive tirelessly to meet those expectations. And in the past quarter and also in the full year of 2023, offline business showed a very limited impact on our financials. So we will update you every milestone of our offline operations in the future.
Operator: The next question comes from the line of Alice Cai with Citibank.
Alice Cai: Firstly, congratulations on the company's strong performance in 4Q. And I have two sections regarding the guidance provided. And the first one, regarding the guidance for Q1, which seems slightly conservative, could the management team share your perspective on this? Do you consider the guidance to be on the cautious side? And second, could you please share with us about a general idea of the guidance for the full year 2024?
Shannon Shen: Let me take your second question first, so we can give the audience a whole picture of our applying for the full year of 2024. So, looking into 2024, the growth in the education space typically initiated from expansion of gross billings. And if we look at our Q4 results, in the fourth quarter of 2023, our gross billings reached approximately RMB 1.3 billion, making the highest single quarter level in the past three years. This metric indicates that our business is only healthy and rising trajectory of growth. And furthermore, we have been able to effectively extend the trend of accelerating growth into the first quarter of 2024. And let's dive into each part of our learning services. We observe that revenue growth, especially in non-academic tutoring, continues to accelerate, given its sound unit economic model. The demand for non-academic tutoring is substantial. With clear compliance and governance guidance in place, our business grows initiates with new enrollments, and subsequently generates incremental revenues through retention and course expansions. So we have confidence in our operational capabilities and the reputation we have established among students and parents. Therefore, we anticipate triple-digit year-over-year growth in our academic tutoring sections, while also our traditional learning services, which is basically a high school business, continue to maintain a leading edge in the online space. We will leverage our existing competitive advantages to further deepen this moat. We anticipate that the growth rate of our traditional business will far exceed that of 2023. And regarding learning services we provided for college students and adults, we are glad to see it rebound in Q4 2023. We always prioritize margin improvements over revenue expansion in this sector and ascertain the profitability at a unit economics level and then focus on achieving the effective growth as our primary strategy. So based on all those considerations, we are willing to elevate our targets and goals for both gross billings and revenue growth in 2024 and have confidence in overall growth prospects for the whole year. Secondly, in terms of those growth and efficiency, our explorations of diverse customer acquisition channels have effectively lowered customer acquisition costs. From high quality content generating on short video, live streaming platforms and to extending into offline customer acquisition paths, our unwavering commitment to creating customer value serves as drivers for our sustainable growth. And in terms of the guidance for the first quarter, in the first quarter, we are still in a phase of adjusting the revenue structure. And we have the confidence that, in the more near future, like in the second quarter of 2024, we will see an accelerated growth rate for both of our gross billings and revenues. That basically addresses your questions.
Operator: The next question comes from Crystal Li with CMS.
Yishan Li: Congratulations on those strong results. I just noticed that your gross profit margins narrowed slightly in this quarter compared to last quarter and last year. Could you please share the reason behind this? And could you give us more color on your margin outlook going forward?
Shannon Shen: It's a very good observation. So, we observed a 4.7 percentage point decrease in GP margin on a year-over-year basis. This year-over-year decrease in GP margin was due to a few reasons. Firstly, in terms of our revenue contributor, to meet diverse user needs, actually, we have constructed a product matrix, which primarily focused on online large live classes, complemented by one-on-one classes, smart textbooks and offline small classes. So, among these, online large live classes posted the highest level of GP margins. As our business expands, the proportion of revenue generated from our one-on-one classes, smart books and offline small classes is gradually increasing, altering the revenue mix and substantially impacting the GP margin level. And secondly, in preparation for the peak season during the winter vacation, we have proactively reserved a proportion of teachers and tutors. These teachers and tutors have not yet reached their full capacity levels in the fourth quarter, thus affecting gross profit margins as well. But as always, we always need a period for our new teachers and tutors to gradually adopt our learning methodologies and provide sufficient training period for our teachers and tutors, so they can better serve our students. So we do see these investments as valuable. So looking forward, in the middle term, our margins are expected to improve. And also in the long run, our gross profit margin will depend on the future revenue structure. Hope that address your question.
Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Catherine Chen for any closing remarks.
Catherine Chen: Thank you, operator. And thank you, everyone, for joining the call today. If you have any further questions, please don't hesitate to contact our Investor Relations department or our management via email at ir@gaotu.cn directly. You are also welcome to subscribe to our news alert on the company's IR website. Thank you very much again for your time. Have a great night.
Shannon Shen: Thank you.
Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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